Is there life after loss of analyst coverage?

Ajay Khorana, Simona Mola, and P. Raghavendra Rau

Georgia Institute of Technology, Arizona State University, and Purdue University

This paper examines why sell-side analysts choose to terminate research coverage on a firm and the consequences of the coverage loss for that firm. Using a sample of 2,753 firms, over the period from 1983 through 2004, that lose all analyst coverage, we find that analysts tend to drop coverage of firms that are unlikely to provide future investment banking and trading revenues to the financial institution analysts work for. Subsequent to the loss in coverage, we find sample firms are significantly more likely to get delisted than control firms matched on the propensity to go bankrupt or to generate investment banking and trading business. Our results shed light on the importance of analyst coverage to firms and the underlying incentives of the analyst community in providing research.

It has been presented at

• Arizona State University;

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